Hillshire Brands dumps Pinnacle for Tyson deal

Hillshire Brands will merge with Tyson Foods as soon as it gets out of a previous deal to buy Pinnacle Foods. However, Pinnacle stands to make hundreds of millions from being dropped by Hillshire.

Paul Sakuma/AP/File

A package of frozen Tyson Chicken Nuggets, left, and a package of Hillshire Farm sausage, in Palo Alto, Calif. In order to merge with Tyson, Hillshire will walk away from an earlier deal to buy Pinnacle Foods.

Hillshire Brands suddenly became the hottest property in the food industry a few weeks ago, when it found itself at the center of a bidding war between Tyson Foods and Pilgrim’s Pride. But the Jimmy Dean sausagemaker’s sudden popularity left an earlier suitor jilted.

Hillshire announced Monday that its board of directors would no longer recommend the company’s planned $4.3 billion cash and stock purchase of Pinnacle Foods, which manufactures well-known brands including Wishbone (salad dressing), Vlasic (pickles) and Aunt Jemima (pancake mix and syrup).

The deal was announced in mid-May, but Hillshire soon had better offers in the form of buyout proposals from Pilgrim’s Pride and Tyson Foods. Tyson reached an agreement last week to buy Hillshire for $63 per share, in a deal worth approximately $7.7 billion.

“The Hillshire Brands board determined, in consultation with its outside financial and legal advisors, that the Tyson Foods takeover proposal constitutes a Superior Proposal as contemplated by the merger agreement with Pinnacle Foods,” the company said in a press statement released Monday morning. “That determination means in general terms that the board has determined, in good faith, that the Tyson Foods proposal would, if consummated, result in a transaction that is more favorable to its stockholders from a financial point of view than the Pinnacle Foods acquisition."

In addition to being worth more for Hillshire, The Tyson deal makes more sense to analysts. The Pinnacle merger would have meant making a significant investment into the increasingly unpopular world of processed foods. The Tyson deal, on the other hand, makes Hillshire a valuable asset in that company’s push into name-brand products, as well as the breakfast market.

Hillshire Brands shareholders still have to vote to kill the deal, and that leaves the rejected Pinnacle with two fairly lucrative options. It can terminate the Hillshire merger before Hillshire’s shareholder meeting (set for August) and earn a $163 million breakup fee under the terms of the earlier merger agreement (that figure is twice the $89 million Pinnacle made in profits last year, according to the Wall Street Journal.) Or, it could force Hillshire to delay the breakup until the August meeting, potentially negotiating a higher breakup fee (which would have to be approved by Tyson).

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“Hillshire Brands does not yet have the right to terminate the merger agreement with Pinnacle Foods on the basis of the Tyson Foods offer or enter into an agreement with Tyson Foods prior to its termination,” the Hillshire release reads.

Either way, the $7.7 billion Tyson offer is on the table until December of this year, when the Pinnacle-Hillshire deal would expire on its own, according to Hillshire.

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